Daily market review

United States

Equities extended their gains Thursday on optimism over the economic outlook, reflected in the Federal Reserve's reassurance Wednesday that the recovery is on track, and on expectations that the worst outcomes from the China Evergrande affair will be avoided. The Dow Jones industrial average advanced 1.5 percent, the S&P 500 gained 1.2 percent, and the NASDAQ was up 1.0 percent.

US long end Treasury bond yields rose Thursday after Fed Chair Jerome Powell's statement Wednesday that he and the Fed policy majority expect to proceed with tapering asset purchases after the next policy meeting in November, assuming economic indicators continue to come in as expected. Investors viewed equity losses early in the week as yet another occasion to buy the dip, and saw the rally on Wednesday and Thursday supporting the view that there is no alternative to equities.

Financials led the day's winners as long end yields rose and the yield curve steepened, a boon to lenders. Energy stocks advanced as oil prices rose, and industrials and materials were strong too on the better economic outlook. Among the day's winners, JP Morgan gained 3.4 percent, American Express rose 3.5 percent, Caterpillar rose 2.8 percent, and Chevron rose 2.5 percent. Tech and health care stocks matched the market. Defensive sectors lagged given the upbeat market mood, but only real estate actually slipped.

Among companies in focus, Salesforce.com jumped by 7.2 percent and Accenture, the consulting giant, rose 2.5 percent after both raised their guidance. On the downside, RiteAid, the pharmacy, fell 6.6 percent on disappointing quarterly revenues. Steelcase, the furniture maker, lost 4.9 percent on an earnings and revenues miss it blamed on supply chain trouble and rising input costs.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.16 to US$77.18 while spot gold fell US$20.48 to US$1,1747.87. The US dollar was mixed but mostly lower vs. major currencies. The US Treasury 30-year bond yield surged 11 basis points to 1.93 percent and the 10-year note yield jumped 10 basis points to 1.41 percent.


Improved risk sentiment reflecting a hopeful view of the China Evergrande situation lifted European equities again Thursday though UK markets lagged on hawkish comments from Bank of England officials. The Europe-wide STOXX 600 and the German DAX both rose 0.9 percent, the French CAC gained 1.0 percent, and the UK FTSE-100 declined 0.1 percent.

European markets took their cue from the rally in Chinese equities on hopes for authorities to limit wider damage from the Evergrande situation after the company appeared to take steps to mollify its domestic bondholders Wednesday. Markets noted Fed Chair Jerome Powell's comments Wednesday appearing to downplay contagion worries.

UK markets lagged Europe after the BOE left policy settings steady but delivered a hawkish statement suggesting actual near-term tightening, and more policy council members dissented to support an immediate end to quantitative easing.

Among sectors in the STOXX 600, outperformers were banks, tech, autos & parts, oil & gas, basic resources, and real estate. Lagging but still higher were travel & leisure, media, food & beverage. Construction & materials, telecom, and health care.

In economic news, purchasers data showed Eurozone economic activity slowed surprisingly sharply in September. At 56.1, the flash composite index undershot the consensus and was well below August's final 59.0. September's decline was due to less momentum in both manufacturing and services. In the former, the flash PMI dropped from August's final 61.4 to 58.7, an 8-month low. At 56.3, services was down from 59.0 previously, its worst performance since May.

Asia Pacific

Asian equities gained Thursday as Hong Kong property stocks recovered to lead the region higher as investors remained hopeful the worst outcomes could be avoided in the China Evergrande affair. It remained unknown how the company planned to handle a huge off-shore debt payment, which apparently did not occur on schedule Thursday, or successive payments.

The Wall Street Journal reported after the Asia close that Chinese authorities had instructed local governments to prepare to manage fallout from a collapse of the company. Other reports suggested the company was making progress toward a restructuring or state takeover. In financial markets, the People's Bank of China added reserves aggressively for a second consecutive day, another support for risk sentiment.

China's CSI 300 gained 0.7 percent and the Shanghai composite rose 0.4 percent, while the Hong Kong Hang Seng gained 1.2. China Evergrande ended up 17.6 percent in Hong Kong trading, and other property stocks rebounded. Many of the company's creditor banks rose too, with Agricultural Bank of China up 2.3 percent, and China Minsheng up 7.6 percent, after they reassured investors they could weather a collapse of Evergrande. Other beaten-down sectors, including gaming, also rallied Thursday as investors bought the dip.

The South Korean KOSPI declined 0.4 percent, with negative fallout from the Federal Reserve signal that it was nearing a decision to taper its bond purchases. Heavily weighted chipmaker SK Hynix lost 1.4 percent. Separately, the Taiwan Taiex gained 0.9 percent, in sympathy with the gains in other Chinese markets.

Japan's markets were on holiday.

Australian markets rallied on relief over the recovery in Chinese markets, which spurred commodities prices, plus positive corporate news, and the strong US showing overnight. Australia's All Ordinaries rose 1.2 percent. Among sectors, miners and financials outperformed. News Corporation was the day's featured winner, up 8.4 percent after announcing a share buyback.

Looking ahead*

In Asia/Pacific, New Zealand merchandise trade, Japanese CPI, Japanese PMI composite flash, and Singapore industrial production reports are due. In Europe, the following are scheduled: German Ifo survey, Italian business and consumer confidence, and UK distributive trades. In North America, the US new home sales report is on tap, and Fed Chair Jerome Powell is scheduled to speak.

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